Odyssey 2010

Referring to the great classical past, Greek Prime Minister George Papandreou had spoken of a “new Odyssey” for his country. Far more prosaically, the Greek Finance Minister George Papacostantinou said: “We must prevent collapse, but from this shock treatment a more credible Greece will emerge”. Overcoming their doubts, the Economic Ministers of the Eurozone gave the go-ahead, on 2 May, to the super-loan of 110 billion in three years that, it is hoped, will save Athens from bankruptcy, and enable a gradual reform of her public finances. An extraordinary meeting of the heads of state and of government of the EU is scheduled for 8 May: Europe has chosen not to leave Greece in the lurch, but demands from her, as a quid pro quo, deep reforms that will cost Greek citizens dear.The decisions taken. The financial operation will comprise bilateral loans between the eurozone countries and Greece for a total of 80 billion in three years. To these funds are added a further 30 billion allocated by the International Monetary Fund. For 2010 the total loan package will amount to 45 billion (30 from the countries of the single currency, 15 from the IMF), as indicated already in the provisional agreement in April. The first allocations will arrive in time to honour the Greek national bonds that will reach their maturity on 19 May (roughly 9 billion). Each State will pay to Athens a figure proportional to the capital subscribed in the European Central Bank: so Germany, France and Italy will be the countries that have to cough up the most… even if the 5% interest rate for the reimbursement of the loan can hardly be considered a favourable condition. So much was admitted by EU Commissioner Olli Rehn: “Greece will pay an interest on the loan higher than the market rate”. So, at least in theory and circumstances permitting, German, French and other EU taxpayers ought not to lose so much as a euro in the operation. The Commission has been given the task of monitoring the whole operation, and precise controls will be conducted every three months. The Greek government has pledged, for its part, to reduce its deficit/GDP ratio from the current 13.9% to 3%, as prescribed by the Stability Pact, by 2014.“Blood and tears”. If she is once again to have sustainable public finances, Greece will now have to undergo a drastic cure, which is quantifiable in short-term cuts to public spending and savings as some thirty billion euros. In this regard Papandreou was clear: “The economic measures we will have to adopt are necessary for the protection of our country and our future”. It’s a bitter but necessary “medicine”. To convince Europe and the IMF to intervene, the Greek government has presented a fairly detailed plan, which the President of the European Central Bank Jean-Claude Trichet called “credible and balanced”. The Mediterranean country will cut a series of investments for several years and proceed to the liberalization of its energy and transport services markets. The salaries of state employees will be curbed, and year-end bonuses axed, while in the private sector it will be easier to sack workers. The government has further pledged to curb the high rate of tax evasion and illegal practices in the building industry. The pensionable age will immediately be raised; not even families will be spared, beginning with a hike in taxes on consumption. In various cities spontaneous street protests greeted the government’s austerity package, and national strikes are in the offing. The trade unions have all expressed their opposition to the measures. Yet Papacostantinou declared: “Difficult times lie ahead of us, but I am certain that the majority of the country will understand the situation and take our side”.Still unresolved problems. The debate on the Greek crisis continues in Brussels, Frankfurt (seat of the ECB) and in various capitals, also in London, in view of the general elections on 6 May, and in Berlin, especially in view of the forthcoming regional elections in Rhineland-Westphalia on 9 May, an important test for the ruling coalition. Economists are divided, while now the focus has been displaced to other situations “at risk”, beginning with Portugal and Spain. The President of the European Commission, José Manuel Barroso, explained that the EU Executive, IMF and ECB have drawn up with the government of Athens “a programme of budgetary consolidation and structural reforms lasting several years” to “restore the Greek economy to a course of sustainability and to restore confidence to the markets”. Barroso considers that the proposed measures “represent a solid and credible package”. But various questions still remain on the table. The first regards the fact that the financial crisis that erupted in 2008 has had a negative impact on all EU states: deficit and public debt have increased in them all and unemployment is still growing; so the problems are not confined to Greece. The second question is linked to the need for a real and reinforced European economic governance which practically all politicians are now calling for. Thirdly, Angela Merkel, German Chancellor, has posed anew the problem of “rules”, calling for “a reform of the Stability and Growth Pact” defined at Maastricht to confer stability on the area of the single currency.